1.5 External environment

1.5 External environment


The external environment refers to the issues and factors that affect a business, but which are out of its control.Through trying to understand the external issues and factors that affect it, a business is better equipped to make effective decisions about its future.

Many acronyms, what do they mean?

Political – Includes legislation (employment, consumer protection and environmental protection etc) and other government intervention like taxation and the control of monetary policy (e.g. through setting or influencing interest rates). The affect of pressure groups can be considered political too.

Economic – Inflation, unemployment, currency exchange rates, economic growth & international trade issues will all affect a business. Consumer and business confidence levels can slap affect economic activity. The actions of competitors may affect a business too.

Social – Social, cultural and demographic change will affect a business.

Technological – New technologies and processes can affect the efficiency of businesses. Robots and computerisation continue to change the way that businesses operate.

PEST usually refers to negative affects, whilst STEP applies to positive affects.

Variations including L, E & E are sometimes added (e.g. STEEPLE). They stand for Legal and Environmental. Legal factors include the protection of patents and copyrights. Also in the EU many new laws are introduced by the EU rather than by individual national governments. Environmental factors are increasingly affecting the way that businesses operate. A third E stands forEthical factors that are becoming increasingly important.

PEST-G is the same as PEST with the addition of Green factors (e.g. ethical and environmental).


Conduct a PEST analysis for NIS